The sub-prime tentacles reach deeperJoe Adamaitisrefinancing or purchasing, consequences, defaults Sub-prime, sub-prime, sub-prime! We hear it day in and day out. We can beat the story of the sub-prime debacle until the cows come home. However, there lies an even more devastating side effect which is mostly unseen by the general public and is not addressed by any of those commentating on the demise of the sub-prime market. We focus on the action committed, but do not delve into the huge impact of said action. Here's what I'm getting at. We've all read about New Century going under, and many others closing their doors. We even have Web sites, www.mortgageimplode.com, showing, at last count, more than 90 lenders on the verge of closing or who have closed their doors. The concern I highlight is that no one is seeing or hearing about the damage done by these lenders who, up until the last minutes prior to closing their doors, are carrying on business as usual, calling on brokers, lenders, banks and credit unions to send in new loans. Let me paint you a picture, and I warn you, it's not pretty. Consider, for a moment, the devastation this can cause not just to borrowers, but the economy and the mortgage industry. Currently, thousands of borrowers are in the process of refinancing or purchasing a home. They have been told by their loan officer or mortgage broker that they have been approved and are waiting to close. Everyone involved has helped the borrower get the approval and has done their job up to this point. Funding is all that's left. And then, bang! With no warning and no indication, the announcement comes over the e-mails and faxes to thousands of mortgage companies, banks and credit unions who have helped these borrowers and intend on selling the paper to this particular lender. "We have closed our doors! We will not honor any approvals, etc." Ladies and gentlemen, including our political representatives, please, take a moment to consider the impact. Thousands are approved to buy a home. Those buyers have sellers who have also arranged to buy their next home and have loan commitments in hand from their lender. The snowball has begun to roll, and the closing of just one lender can be catastrophic. There could be as many as 1,000 to 10,000 to 20,000 or more scheduled transactions which will now fall apart because of one lender closing their doors! Imagine the impact one lender can have. The same thing can be said for refinances. This leaves us to examine why we allow lenders (those who buy the mortgage paper) to string everyone along until the last possible moment. Allowing this to happen puts every one of the parties in a bad position. The loan officers and mortgage brokers are blamed--as it is perceived by the borrower that they did something wrong. The buyers default on their purchase, causing a snowball of defaults. Those refinancing and who may have put their mortgage payments on hold thinking they were closing are now late, and those refinancing to beat the increase in their adjustable have just gone into shock! My statement to all, including our political representatives, is, "Beware of the unseen consequences of this situation." There's much more to it than meets the eye, and changes should commence immediately. Yes, I'm in the mortgage industry and have been for more than 25 years. This has happened before, and unless we change the rules, it will continue to happen. The lenders you see closing their doors are doing so for a number of reasons. Certainly, the sub-prime issue is at the forefront; however, the most common is the lack of business. These firms are wholesalers for the most part who rely on huge volume. They profit on small margins and, as we all know, the volume is not what it used to be; therefore, profit dries up. Jobs are lost with no warning, and borrowers, sellers, mortgage lenders and brokers all become the victims. The bottom line ... a message should be sent to those who solicit for new business up to the very end. Stop or be fined. For those politicians who want to make hay such as Connecticut Sen. Christopher J. Dodd, here's where you can help make a difference. Until then, we should keep our heads up for more incoming news. Joe Adamaitis is president of Direct Mortgage Services Inc. He may be reached at (603) 427-6083, e-mail [email protected].